Investigating the service brand: A customer value perspective

Journal of Business Research 62 (2009) 345–355

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Journal of Business Research

Investigating the service brand: A customer value perspective Roderick J. Brodie a,⁎, James R.M. Whittome b, Gregory J. Brush a a b

Department of Marketing, University of Auckland, Private Bag 92019, Auckland, New Zealand Research International, PO Box 99069 Newmarket, Auckland, New Zealand

A R T I C L E

I N F O

Article history: Received 1 June 2007 Received in revised form 1 March 2008 Accepted 1 June 2008 Keywords: Brand Service Image Reputation Trust Customer value Customer loyalty

A B S T R A C T Despite considerable interest in the nature and role of marketing using a service perspective [Vargo S., Lusch R. Evolving to a new dominant logic for marketing. J Mark 2004; 68 (1): 1–17] there is limited research about branding. Research to date tends to be qualitative [e.g., Berry L. Cultivating service brand equity. J Acad Mark Sci 2000; 28: 128–137; de Chernatony L., Segal-Horn S. The criteria for successful services brands. Eur J Mark 2003; 37 (7/8): 1095–1118] rather than quantitative. This research closes this gap by developing and testing a theory of the influence of the service brand on the customer value–loyalty process. The model includes the traditional influence of brand image plus three additional influences that more fully reflect the broader service perspective (company image, employee trust, and company trust). Using survey data of a sample of 552 airline customers, the analysis shows there is a direct influence of all the aspects of the brand on customers' perceptions of value. In addition brand image, company image and employee trust have a mediated influence on customer value through customers' perceptions of service quality. Finally the analysis shows that a service brand does not have a direct influence on customer loyalty but rather its influence is mediated through customer value. This paper concludes with a discussion of the managerial and research implications. © 2008 Elsevier Inc. All rights reserved.

1. Introduction The majority of the research about brands, until recently, focuses on consumer goods settings and centers around understanding the influences of the awareness and image of the brand (Keller, 1993). However, there is an emerging stream of research about branding, which aligns with the Service Dominant Logic (Vargo and Lusch, 2004), that focuses on the value-adding processes leading to creation of the customers' experiences (Berry, 2000; de Chernatony and SegalHorn, 2003).Within this perspective the brand plays a broader role where it interfaces not just with end customers but the company, its employees and a network of stakeholders. Research articles (e.g., Padgett and Allen, 1997; Dall'Olmo Riley and de Chernatony, 2000) and text books (e.g., Kasper et al., 2006, p. 163) refer to this broader perspective of branding as the “service brand.” It is important to note that the “service brand” does not mean the same thing as the branding of services. Rather, it follows the way Vargo and Lusch (2004, p. 2) use the term service marketing; “where the service-centered dominant logic represents a reoriented philosophy that is applicable to all marketing offerings, including those that involve tangible output (goods) and the process of service provision.” Hence the concept of the service brand is integrative where “service” is super⁎ Corresponding author. E-mail addresses: [email protected] (R.J. Brodie), [email protected] (J.R.M. Whittome), [email protected] (G.J. Brush). 0148-2963/$ – see front matter © 2008 Elsevier Inc. All rights reserved. doi:10.1016/j.jbusres.2008.06.008

ordinate to the branding of “goods” and/or “services” (Brodie et al., 2006). The pioneering research of Berry (2000), which stems from the interpretation of his personal experiences with labor-intensive service organizations, provides initial insight into the way brands play a broader role. While Berry's model still recognizes that the awareness of the company's presented brand influences the brand's equity, Berry suggests the brand's “meaning” that the customers derive from their service experiences is more important. Hence, Berry (2000, p.128) states that “the company” becomes the primary brand rather than the product. This implies that the consumers' experiences with the organization and its employees delivering the service offer are the major determinants of brand meaning. Research by Dall'Olmo Riley and de Chernatony (2000) and Davis et al. (2000) expand on Berry's (2000) model. The Dall'Olmo Riley and de Chernatony (2000) research utilizes 20 personal interviews with senior executives in the UK who are experts in the area of service marketing. The findings from this study reveal that the service brand acts as a “relationship builder” or “relationship fulcrum.” They conclude that: “the service brand is a holistic process beginning with the relationship between the firm and its staff and coming alive during the interaction between staff and customers” (p. 138). Similarly, Davis et al. (2000) undertake a study to understand online consumer shopping experiences. Their qualitative study also reveals that the retail company is the primary brand. This defines the consumers' experiences when shopping online in terms of service attributes, symbolic meanings and functional consequences of

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the service encounter. To fulfill this role the retail brand acts as a “relationship lever” upon which trust is built between a consumer and service provider. These studies provide a useful extension to Berry's service branding model by elaborating on the nature of brand meaning. They show that the brand creates “experiential image,” “service experience promise” and “relationship trust.” Together these three studies highlight the need to have a broader conceptualization when rethinking the traditional image and logo view of the brand. The purpose of the research is to further explore the understanding of the nature of the service brand by undertaking a quantitative investigation. Previous research about the nature of the service brand is largely qualitative. The empirical setting for the research is travel and a national airline is chosen. An important factor supporting this choice is the existence of ongoing extensive advertising and communication campaigns in which the image of the airline service and the airline itself is differentiated from its competitors. In addition, airline travel also provides a useful context to investigate the manner in which the employees and the management policies and practices of the airline exert influence, as the service processes involve extensive customer interactions with the airline and its employees. This study also extends the pioneering research by Sirdeshmukh et al. (2002) that examines the relationship between consumer trust, value and loyalty for an airline service, yet does not examine the influence of brand image. The remainder of the paper is as follows. The next section examines the customer value–loyalty process and develops a theoretical framework for the service brand. The theoretical framework for the service brand is then combined with the customer value– loyalty process to derive the conceptual model and the hypotheses. The following sections outline the research methodology, present the findings and discuss their implications. 2. Theoretical framework, conceptual model and hypotheses 2.1. The customer value–loyalty process The nature of customer value, how it determines customer loyalty and how this in turn leads to financial outcomes is the subject of considerable discussion amongst academics and consultants (Payne and Holt, 1999; Woodruff, 1997). As with the development of any new area, there is debate about the alternative ways concepts can be defined. Some authors focus just on the benefits of customer value (e.g., Orth et al., 2004; Sweeney and Soutar, 2001). Others adopt a cost–benefit view, which assesses value on the basis of a “get for give” view. The benefits are what the customer gets, and costs are what the customer gives up (e.g., Netemeyer et al.. 2004; Whittaker et al., 2007; Zeithaml, 1988). Within a pricing theory context, Monroe (1990) refers to this as the “worth what paid for” trade-off. This study uses the “worth what paid for” approach as research by Bolton and Drew (1991) and Varki and Colgate (2001) show this is the most effective way to examine the relationship between customer value and loyalty.

of the bundle of attributes that someone buys,” which may be “illusionary, rational or emotional, tangible or invisible.” Balmer and Gray (2003) also drawing on the concept of a promise suggest “the core of a corporate brand is an explicit covenant between an organization and its key stakeholder groups, including customers” (p. 982 italics added). To develop the conceptual framework for the service brand the model first developed by Calonius (1986) and refined by Bitner (1995) and Grönroos (1996, 2006, 2007) is adapted (see Fig. 1). Within the framework the external, internal and interactive marketing activities of the organization form the customer, employee and organizational brand perceptions. The framework also portrays the service brand as playing an integrating role aligning customer, employee and organization brand perceptions and attitudes. The three marketing processes are: 1. External marketing (communication between the organization and customers making promises about the service offer). 2. Interactive marketing (interactions between people working within the organization/network and end customers creating the service experience associated with the delivery of the promises about the service offer). 3. Internal marketing (creating value through the supporting resources and processes which make and deliver promises about the service offer involving the organization and people working in the organization). The focus in this study is on customers' perception of the service brand. External marketing and interactive marketing influence this perception, with internal marketing having an indirect effect. Examination of the integrating role of the service brand, through internal marketing, is beyond the scope of this study. Within the theoretical framework, the external marketing activities are associated with the “making of promises.” This largely relates to the traditional external marketing communications organizations use. First there are the communications that build awareness of the brand name and logo creating a distinctive image about the service offer. Second there are communications about company image that concern the organization's reputation rather than the characteristics of the service offer. Balmer and Gray (2003) refer to the company image and reputation as the corporate brand. That the brand name for the service is also sometimes the same as the company name can present a complication. However, while the names are the same within the conceptual framework a clear distinction is made between the communications about brand image and communications about the company image. The research model treats them as separate but related constructs. The interactive marketing activities are associated with “delivering promises.” These involve the interactions and experiences between

2.2. Developing a conceptual framework for the service brand Research by Padgett and Allen (1998), Berry (2000), Dall'Olmo Riley and de Chernatony (2000) and Davis et al. (2000) provides a valuable initial understanding of the role of the brand using a service perspective. This involves paying more attention to integrating the role of the brand in the value-adding processes creating customer experience, dialogue and learning. Within this logic Dall'Olmo Riley and de Chernatony (2000, p. 140) view the customer–brand-relationship as the “reciprocity, mutual exchange and fulfillment of promises.” This recognizes the importance of aligning what is promised in the brand communications with the values of the people responsible for service delivery (de Chernatony, 2003). Other authors also highlight the integrating role of promises. For example, Ambler and Styles (1996, p. 10) define a brand as a “promise

Fig. 1. Types of marketing and their influence on the perceptions of the service brand.

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the company, the service providers (front line employees) and the customers. If these experiences are positive and aligned with the “making of promises” this leads to building customer trust. However, if they are negative and don't align with what is promised then there is a loss of customer trust. Following Sirdeshmukh et al. (2002), within our conceptual framework a distinction is made between customer trust in the service providers' behaviors and customer trust in the company's management policies and practices. 2.3. Conceptual model Fig. 2 presents the conceptual model and the hypotheses for this study. The customers' brand perceptions consist of brand image, company image, employee trust and company trust. Each aspect of the brand is hypothesized to have a separate influence on customers' perceptions of service quality and value. The model treats the four aspects of the brand as separate constructs. However, it is recognized that they are not mutually exclusive and conceptually there is some overlap. Thus when estimating the model it is assumed they are partially correlated and what is important is the tests show there is discriminant validity. There are also brand elements other than the four chosen that could be used to portray the service brand that are excluded for reasons of parsimony. In addition, in service environments customer value is co-created through the two way interactions between the customer and the marketing activities of the service provider. While this study only hypothesizes the influence of the brand on the customer value–loyalty process, in a study setting where there is multi-period information the hypotheses could be bi-directional. 2.4. Brand image hypotheses Keller (1993, p.3) defines brand image as the “perceptions about a brand as reflected by the brand associations held in consumers' memory.” These associations encapsulate the emotional perceptions consumers attach to a brand (Dobni and Zinkhan, 1990) and symbolic meanings attached to specific attributes of the product or service (Padgett and Allen, 1997). Hence, a brand's image integrates functional

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and symbolic brand beliefs forming the consumer's overall impression of the brand (Low and Lamb, 2000). Building upon this understanding, Hsieh et al. (2004) define brand image in relation to evoked feelings, impressions, perceptions, beliefs and attitudes towards a brand. The brand image encapsulates the consumer's evaluation of brand meaning (Hoeffler and Keller, 2002), which the organization transfers to the consumer through integrated marketing communication channels such as advertising and sponsorship processes. To provide a more specific understanding of brand image, Thakor (1996) suggests that brand image can be thought of as benefits, attributes or personality traits. Of particular relevance is the concept of brand personality. Aaker (1997, p.348) defines brand personality as a “set of human characteristics associated with a brand.” These personality driven evaluations explain why a consumer may hold an emotional connection towards one brand but not another (Aaker, 1997). A range of direct and indirect encounters with the brand such as advertising processes (Batra et al., 1993) create and influence conceptions of brand personality. Thus, external communications largely form brand personality. Despite inferences of the importance of the role of brand image in creating brand equity (Aaker, 1992; Keller, 1993), there is limited understanding about its influence on the customer value–loyalty process. From a theoretical standpoint, Keller's (1993) customer brand equity model suggests that brand image is a key driver in eliciting the attributes, benefits, and attitudes towards the brand. Of particular relevance to this study is the research by Erdem and Swait (1998). They show that a brand's personality influences customer perceptions of service quality and value by using signaling theory. Also relevant is the research by Dawar and Parker (1994) that uses cue utilization theory. They show that an exciting brand personality may store intrinsic cues, which portray the consumers' experience and influence perceptions of service quality and value. In addition, Yoo et al. (2000) show that a store's image has a positive relationship with perceptions of the quality of the brand. Furthermore, O'Cass and Grace (2004) provide evidence for the relationship between brand aroused feeling (brand image) and positive brand perceptions. In addition the text by Duncan and Moriaty (2002) and recent papers by Reid et al. (2005) and Madhavaram et al. (2005)

Fig. 2. Conceptual model and hypotheses.

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highlight the important influences of brand identity and image in an integrated marketing communications environment. The following hypotheses are proposed:

value mediates the influence of customers' perceptions of the company on customer loyalty. As with brand image, the direct effects of company image are tested when the robustness of the model is examined.

H1a. Customer perception of brand image positively influences customer perception of the quality of the service offer.

2.6. Employee and company trust hypotheses

H2a. Customer perception of brand image positively influences customer perception of value. It is not proposed that brand image has a direct influence on customer loyalty. Within the customer value–loyalty framework it is suggested that service quality and customer value mediate this influence. Nonetheless, the direct effect of brand image on loyalty is subsequently tested when the robustness of the proposed model is examined. 2.5. Company image hypotheses Across both marketing and management fields there is increasing interest in company image and the broader concept of company reputation (e.g., Balmer, 2001; Deephouse, 2000; Dolphin, 2004; Logsdon and Wood, 2002; Weiss et al., 1999; Whetten and Mackey, 2002). In the management and marketing literature the terms corporate image, corporate reputation, company image and company reputation are sometimes used interchangeably (Balmer, 2001). In order to be consistent with the use of brand image this study uses the term company image. In their seminal study Brown and Dacin (1997) show the company's image derives from customers' perceptions of its capability and its social responsibility. Corporate capability deals with the company's expertise in producing product/service offerings (e.g., the firm's reputation for innovation or quality). Corporate social responsibility refers to the company's management of societal issues (e.g., investing in philanthropic activities, being environmentally responsible). A range of studies illustrates the benefits of a strong image and reputation. The benefits include increasing customers' buying intentions (Yoon et al., 1993), promoting higher rates of customer retention (Preece et al., 1995), enabling price premiums to be charged (Greyser, 1995), attracting investors (Fombrun and Shanley, 1990) and helping a firm survive in a time of crisis (Shrivastava and Siomkos, 1989). Signaling theory provides a framework to explain the empirical link between company image and the customer value–loyalty process (Erdem and Swait, 1998). Applying this theoretical view, the company's communications, which it develops to build its image for social responsibility and corporate capability, create a repository of credible information signals. Customers use these cues to ascertain the quality and value of the intangible service the firm provides (Dawar and Parker, 1994; Hoyer and Brown,1990; Richardson et al., 1994; Teas and Agarwal, 2000). Moreover, Chen and Dubinsky (2003) apply signaling theory in an online environment to find that as an extrinsic cue, reputation plays an important role for consumers when determining the product quality of an online retailer. In addition, several researchers posit a strong relationship between company reputation and financial performance and/or firm value creation (Eberl and Schwaiger, 2005; Roberts and Dowling, 2002; Srivastava et al., 1997). The following hypotheses are proposed: H1b. Customer perception of company image positively influences customer perception of the quality of the service offer. H2b. Customer perception of company image positively influences customer perception of value. A number of empirical studies find a strong positive association between company image and customer loyalty (e.g., Andreassen and Lindsestad, 1998; Selnes, 1993; Weiss et al., 1999; Zins, 2001). However, none of these empirical studies examine the influence of company image within the customer value–loyalty framework, where customer

Much of the research examining the trust component of relationship marketing is in a business-to-business context with a dominant product marketing focus (Anderson and Narus, 1990; Doney and Cannon, 1997; Ganesan,1994; Morgan and Hunt,1994). Only recently is there emphasis on understanding trust in a business-to-consumer services context (Garbino and Johnson, 1999; Osterhus, 1997; Sirdeshmukh et al., 2002). Research in this area also examines trust in the brand (Delgado-Ballester, 2004) and the linkage to brand equity (Chaudhuri and Holbrook, 2001; Erdem and Swait, 2004). Additionally, Sirdeshmukh et al. (2002) examine the linkage between trust and value creation. In this study a distinction is made between customers' beliefs about the company's image and customer trust in the delivery of the service offer. Conceptually company image is the customers' overall image of the promises the company makes about its social responsibility and its capabilities. This is a global attitude of the company, which external communications largely influence. In contrast, customer trust is more localized and experience based and reflects the customer's interactions with the company and employees in delivering the service experience. Hence it relates specifically to customers' experiences with the management policies and practices, and employee behavior (i.e. delivering the promises). The research by Sirdeshmukh et al. (2002) is the most relevant to the study as it focuses specifically on the influence of customers' trust on customer value and customer loyalty. They distinguish between customers' trust in the behavior of employees and trust in the company's management policies and practices for a clothing retailer and an airline service. For the clothing retailer they find employee trust influences customer value, while for the airline service they find trust in the company influences customer value. Thus the following hypotheses are proposed about employee and company trust: H1c. Customer trust in employee behavior positively influences customer perceptions of the quality of the service offer. H2c. Customer trust in employee behavior positively influences customer perceptions of value. H1d. Customer trust in the company's management policies and practices positively influences customer perceptions of the quality of the service offer. H2d. Customer trust in the company's management policies and practices positively influences customer perceptions of value. A number of studies provide evidence about the linkage between trust and loyalty in both business-to-business (Ganesan, 1994; Morgan and Hunt, 1994; Osterhus, 1997) and business-to-consumer settings (Chaudhuri and Holbrook, 2001; Erdem and Swait, 2004; Garbino and Johnson, 1999; Sirdeshmukh et al., 2002). However, only the Sirdeshmukh et al. (2002) study examines the influence of customer trust within the customer value–loyalty framework. Within this framework they suggest that customer value mediates the major influence employee and company trust have on customer loyalty. However, as with brand image and company image the direct effects are tested for when the robustness of the model is examined. 2.7. Customer value-loyalty hypotheses Building upon the seminal work on customer value by Zeithaml (1988), the study conceptualizes customer' perceptions of value as a

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trade-off between customer perceptions of the benefits (service features that determine perceptions of the quality of the service) and customer perceptions of the costs (monetary and non-monetary costs of the service). There are numerous academic and practitioner studies supporting the cost/benefit trade-off conceptualization of customer value (e.g., Bolton and Drew, 1991; Eggert and Ulaga, 2002; Gale, 1994; Higgins, 1999; Kordupleski, 2003; Laitamaki and Kordupleski, 1997; Rust et al., 2000; Rust et al., 1995; Teas and Agarwal, 2000; Varki and Colgate, 2001). The following hypotheses are proposed: H4a. Customer perception of the quality of the market offer positively influences customer perceptions of the value of the market offer. H4b. Customer perception of monetary and non-monetary cost of the market offer negatively influences customer perceptions of the value of the market offer. Empirical evidence in both business-to-consumer and business-tobusiness environments provides strong support for the positive relationship between customer perceptions of value and customer loyalty. For example, in a business-to-consumer retail setting across both product and service retail offerings, Cronin et al. (2000) find a strong relationship between customer value and customer behavioral intentions. Sweeney and Soutar (2001) in a subsequent retailing based study, find a significant relationship between customer value, and attitudinal and behavioral intentions. More recently in a tourism based setting, Duman and Mattila (2005) find that perceived value is a strong predictor of behavioral intentions when measuring the holistic service experience for cruise vacation travelers. Of particular relevance is the study by Sirdeshmukh et al. (2002) that shows strong relationships between customer value and loyalty for both clothing retailing and an airline service. The following hypothesis is proposed: H4c. Customer perceptions of the value of the market offer positively influences customer loyalty. 3. Method 3.1. Study area and data collection The airline participating in this research holds a strong market presence in both international and domestic markets. Extensive advertising and communication campaigns differentiating the image of the airline service and the airline itself from its competitors support this position. The advertising campaign integrates with the airline's website and the airline encourages customers to use the website to obtain further information and purchase tickets. At the time of the study the airline estimates that greater than a third of the ticket purchases are made online. The airline has an Internet-driven web site and customer database which it uses for a number of marketing purposes such as direct marketing offers, customer query contact, online travel booking, company investment information and company press releases. Since the airline uses the Internet as a key point of contact with its regular customers, it is considered appropriate to conduct an online survey of recent airline customers. Furthermore, the airline company often uses the Internet for purposes of market research. Hence this provides an ideal medium to conduct the survey. The sampling frame is made up of the email addresses of customers that had flown with the airline in the past year. This ensured that the respondent is familiar with the airline's current marketing strategy and service delivery. A random sample of 3000 customers was selected and they were emailed an invitation to participate in the research. Over 15% (464) of the email invitations were returned automatically to the market research company as undeliverable. The airline only agreed to allow potential participants two days to respond but in that time period 552 airline customers provided fully completed responses, yielding a fully

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completed response rate of 21.8%. Bearing in mind that this was achieved within a limited time frame this was considered an acceptable response rate. Also the achieved sample matched well with the profile of the airline's travelers, alleviating concerns about an early response bias. The majority of the respondents are in the 30–59 year old group (77%) with 13% younger and 10% older, and the gender balance is reasonable (females 55% versus males 45%). As could be expected the sample exhibits above average incomes with over two-thirds (69%) indicating a personal pre-tax income of $60,000 or greater. The intended annual spend for travel displays a relatively normal distribution with a median figure towards the upper end of the $2000–4000 range. 3.2. Measures Following the guidelines Jarvis et al. (2003) provide, the constructs of brand image, company image, employee trust, company trust and customer loyalty are modeled with reflective indicators, while service quality and cost are more appropriately modeled with formative indicators. Consistent with previous research using the customer value–loyalty process, a single item is used to measure the customer cost/benefit trade-off of customer value (e.g., Bolton and Drew, 1991; Gale, 1994; Rust et al., 2000; Varki and Colgate, 2001). Also, the recent research by Bergkvist and Rossiter (2007) shows the superiority of using single item measures when the construct consists of a concrete singular object and a concrete attribute. As previous research in this area uses ten-point scales, each of the items are measured by a 1–10 Likert-type scale to avoid the ambiguity caused by using variously numbered scale measures for different constructs (Netemeyer et al., 2003). The exceptions are employee trust and company trust, which are measured using a semantic-differential type format. The questions used to develop the measures are given in Appendix A. The choice of the items to develop the measures is now discussed. 3.2.1. Brand image Within the theoretical framework the controllable external marketing communications (particularly from advertising and sponsorship) influence customers' perceptions of the image of the service offer or brand image. As a result, the items selected are chosen to reflect the airline's advertising and other communication programs about its service offer. Two items that are included have been used in previous research by the airline. They are based on their recent communication program (“think outside the square” and “are warm and engaging”). In addition, after discussion with the airline's customers and airline executives, it was decided that four of Aaker's (1997) personality items are closely aligned with the airline's recent communications. They are “are daring,” “are spirited,” “are imaginative,” and “are up-to-date.” Hence six items are used to reflect the image of the service offer. To ensure the customers are responding to the external communications, the questions about brand image are introduced with; “For this section please consider your attitudes towards the airline's marketing and advertising campaigns from all media such as TV, Internet, magazines, radio and sponsorship activities.” 3.2.2. Company image As with brand image, within the theoretical framework the controllable external marketing communications (particularly from advertising and sponsorship) influence the customers' perceptions of the organization that is offering the service. Thus the items are chosen to reflect customers' overall attitude towards the airline's company image, as opposed to the image of the service offer. The research by Logsdon and Wood (2002), Wartick (2002), and Whetten and Mackey (2002), who develop and test scales to measure company image and reputation in other business settings, was reviewed to provide a pool of items. After discussion with the airline's customers and airline's executives five items were chosen to reflect the promises about the

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company's image (“being involved with the community,” “being well managed,” “keeping you informed about what is happening in the company,” “being a good corporate citizen,” and “being successful”).

experience with this Airline?” To ensure the respondents are making an overall judgment about customer value the following ten-point scale is used (1 = extremely poor value and 10 = extremely good value).

3.2.3. Employee and company trust Within the theoretical framework the aspects of employee trust and company trust are derived from the customers' experiences with the people working within the organization and the organization's management policies and practices when delivering the promises. Thus, items to reflect employee and company trust need to be linked directly to the customer experience with the service delivery process of the airline as opposed to the external communications. To meet with this requirement the items Sirdeshmukh et al. (2002) use in their airline travel study are chosen. As the study extends the work by Sirdeshmukh et al. (2002) this is considered appropriate. However, the study also recognizes that a number of other measures could be used (e.g., Doney and Cannon, 1997; Ganesan and Hess, 1997). The measures used here are the customers' feelings about the “reliability,” “competence,” “integrity,” and “responsiveness” of the employees' behavior and the company's management policies and practices. As with the Sirdeshmukh et al. (2002) study the questions about trust follow detailed questions about the customers' experiences of the trustworthiness of the service delivery (the trustworthiness measures are not used in this study). This ensured that respondents are relating to their service experiences as opposed to the overall brand image and company image.

3.2.6. Customer loyalty The final stage of the conceptual model seeks to measure the loyalty of the customer. The loyalty items from the Sirdeshmukh et al. (2002) airline study, which include both attitudinal and behavioral loyalty components, are used. The items examine how likely the respondent is to “do most of their future travel with the airline,” “recommend this airline to friends, neighbors and relatives,” “use this airline the next time they need to travel,” and “take more than 50% of their flights with this airline.”

3.2.4. Service quality and costs The measures representing service quality and costs are assumed to be formative. Consequently, the criteria Diamantopoulos and Winklhofer (2001, p. 271) establish are used to evaluate their validity. When selecting the items they need to satisfy the conditions of “content specification,” which means they adequately cover the theoretical domain of the construct, and “indicator specification,” which requires that items are appropriate and comprehensive. After discussions with the airline seven items were chosen to measure service quality. These are based on the airline study by Zins (2001). They are “the air points program,” “the seat comfort,” “the range of entertainment provided,” “the quality of the beverages served during the flight,” “the quality of the meals served during the flight,” “the friendliness of the cabin crew,” and “the helpfulness of the cabin crew.” An additional check is made to ensure these items are appropriate and comprehensive by examining the focal strategy of the airline. For costs three items that form customers' perceptions of the monetary and non-monetary costs of the service offer are adapted from the airline study by Sirdeshmukh et al. (2002). They are “the monetary cost of the flight ticket,” “the amount of taxes, levies and surcharges paid” and “the waiting time.” Discussions were held with airline management and customers to confirm both sets of items “adequately covered the theoretical domains” and are “appropriate and comprehensive”. 3.2.5. Customer value The customer value measure the study uses represents customers' judgment about the trade-off between benefits (customer perception of the quality of the service features that determine the service offer) and costs (customer perception of the monetary and non nonmonetary cost of the service offer). Hence, consistent with previous research, a single item measure is used to assess the customers' overall judgment of “worth what paid for” (e.g., Bolton and Drew, 1991; Gale, 1994; Patterson and Spreng, 1997; Rust et al., 2000). The question to gauge the respondents' perceptions of “worth what paid for” is posed after detailed questions about service quality and costs. This allows the respondents to anchor the concept within a particular usage context and thus provides an overall assessment of the trade-off between benefits and cost (Zeithaml, 1988). The question is: “Overall, thinking about the service features in comparison to the costs associated with flying this Airline, how would you rate your overall

4. Analysis and findings Following Anderson and Gerbing (1988), this study uses a two stage modeling approach. The first stage involves the evaluation and refinement of the measures being used. The second stage involves estimating the model and testing the hypotheses. 4.1. Measurement evaluation and refinement The study involves the use of both formative constructs (service quality and costs) and reflective constructs (brand image, company image, employee trust, company trust and customer loyalty). Thus, for the two types of measures the study requires different evaluation procedures. 4.1.1. Formative constructs Diamantopoulos and Winklhofer (2001) provide criteria for formative scale construction. These involve making assessments about whether the measures for service quality and costs have content validity, the items chosen are appropriate, the items are not excessively collinear, and measures have external validity. Justification for meeting the requirements of content and indicator specification is provided in the previous section, so now indicator collinearity and external validity is considered. Examination of Variance Inflation Factors (VIFs) for the items is used here as the test for excessive indicator collinearity. For service quality all of the seven items are below eight, which is below the threshold of ten recommended by Hair et al. (1998), while for cost the three items have VIFs below two. To test for external validity, the study examines how well the formative indicators relate to external variables. The questionnaire includes an item asking for respondents' overall evaluation of service quality, and the overall costs rating for the Airline. This provides an overall summary measure of each construct. As with the other questions, a ten-point scale (1 = poor, 10 = excellent) is used to obtain measures for the overall evaluation. The bi-variate correlations between the indicators and the overall summary measure of the construct they are forming are examined. All of the indicators are positively and significantly correlated with their respective overall measures. Additionally, a regression equation is specified for each formative construct. All items have a positive and significant loading (p b .01) on their overall summary measure with one exception (quality of the meals served during the flight). This item is marginally significant (p b .10). The model R2 for service quality is .71 and costs .76. These results indicate that the measures of service quality and costs have adequate external validity, and so all items are retained. Having demonstrated adequate validity, the individual item measures for service quality and costs are used to form indices for the two constructs. 4.1.2. Reflective constructs Each of the multiple-item reflective measures (brand image, company image, employee trust, company trust, and customer loyalty)

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value (SMC = .89), and customer loyalty (SMC = .41). All of the hypotheses except H1d (influence of company trust on service quality) are supported (see Fig. 3).

are subjected to an assessment of internal and external consistency (Anderson et al., 1987; Gerbing and Anderson, 1988). This is in order to justify the unidimensionality of the constructs. LISREL 8.3 and its companion program PRELIS 2 are utilized for this task. A confirmatory factor analysis, using Maximum Likelihood Estimation, is specified for the five multiple-item reflective measures where each item is restricted to load on its pre-specified factor. The overall fit measures suggest an acceptable fit to the data (χ2(220) = 1927.18, CFI = .89, IFI = .89, SRMSR = .07), although it is acknowledged the CFI and IFI measures are marginally below the generally accepted level of .9. Additionally, all factor loadings are statistically significant (p b 0.01). Standardized factor loadings for all 23 items exceed the .70 standard that indicates that each item is accounting for 50% or more of the variance in the latent underlying variable (Bagozzi and Yi, 1991). Hence these measures display adequate within-method convergent validity. Furthermore, the composite reliability of each construct exceeds the .70 level suggested by Nunnally (1978). The average variance extracted from each construct exceeds the desirable value of .50 (Bagozzi and Yi, 1988). While the four aspects of the brand are treated as separate constructs, it is recognized they are not mutually exclusive. Hence it is necessary to test whether there is sufficient discrimination between them. The Fornell and Larcker (1981) test is used. This examines whether the average variance extracted for each construct is higher than the squared correlation between that construct and any other construct in the model. In all cases the tests demonstrate discriminant validity. A second test Anderson and Gerbing (1988) suggest that constrains the estimated correlation parameter between pairs of constructs to one and then performs a chi-square difference test on the values obtained for the constrained and unconstrained models is also used. For all cases the chisquare difference test is significant at the p b .01 level indicating the constructs are not perfectly correlated and that discriminant validity is achieved. The smallest change in chi-square is for company image and brand image (Δχ2(1) = 640.22, p b .01). Table 1 reports the correlations between the model constructs and their descriptive statistics, including the reliability statistics for the reflective measures. There are strong correlations between all the constructs (p b .01), which provide evidence of nomological validity for the conceptual model presented in Fig. 2.

4.2.1. Influence of brand image H1a and H2a predict the influence of the airline's brand image on customers' perceptions of service quality and customer value. Both hypotheses find support, with the strongest influence being on service quality (b = .35, p b .01) and a weaker influence on customer value (b = .18, p b .01). 4.2.2. Influence of company image H1b and H2b predict the effects of the airline's company image on customers' perceptions of service quality and customer value. Similar to the influence of brand image both hypotheses are supported with the strongest influence being on service quality (b = .40, p b .01) and a weaker, and marginal, influence on customer value (b = .12, p b .10). 4.2.3. Influence of trust in employee behavior and trust in company policies and practices H1c and H1d predict the effects of the trust held towards the airline's employees and the company on customers' perceptions of service quality. H2c and H2d predict the effects of the trust held towards the airline's employees and the company on customer value, respectively. For this case, H1c is supported (b = .17, p b .05), whereas H1d (b = − .06) is not supported. In contrast, both H2c and H2d are supported. Employee trust influences customer value (b = .10, p b .05). There also is a marginally significant relationship between company trust and customers' perceptions of value (b = .10, p b .10). 4.2.4. Service quality, costs, customer value and customer loyalty H4a, H4b and H4c predict the effects of the airline's service quality on customers' perceptions of customer value, the effects of costs on customers' value perceptions, and the effects of customer value perceptions on customer loyalty intentions, respectively. The results strongly support all three of these hypotheses. Customer perceptions of service quality are found to have a moderately strong influence on perceptions of customer value (b = .30, p b .01), as are costs (b = − .35, p b .01). Consumer perceptions of customer value are found to have a strong influence on customer loyalty (b = .64, p b .01).

4.2. Model estimation and hypothesis tests 4.3. Testing the direct influence of the service brand on customer loyalty Consistent with previous studies that have models with both formative and reflective constructs (e.g., Homburg et al., 1999), the study uses a LISREL procedure to estimate the model. The overall fit measures of the LISREL structural model suggest that the hypothesized model provides a good fit to the data. Although the chi-square test is significant statistically (χ2(7) = 74.63, p b .01), the fit statistics (CFI = .98 IFI = .98 SRMSR = .03) meet commonly accepted standards for acceptable model-data fit (Bentler, 1989; Kline, 1998). The squared multiple correlations (SMC) also suggest that the factors studied explain a significant portion of the variance in service quality (SMC = .60), customer

In testing the robustness of the conceptual model the study examines the assumption that the influence of the service brand is mediated through service quality and customer value. For this test an extended model where brand image, company image, employee trust, and company trust also have direct influences on customer loyalty is proposed. With the marginal exception of company image (b = .16, p b .10), all of the service brand aspects have an insignificant direct effect on customer loyalty. A nested chi-square difference test between the original model and the extended model also is examined. The chi-square

Table 1 Correlations, means, standard deviations and Cronbach's alpha for measures Construct

Brand image

Company image

Employee trust

Company trust

Service quality

Costs

Customer value

Customer loyalty

Brand image Company image Employee trust Company trust Service quality Costs Customer value Customer loyalty Mean Standard deviation Cronbach's alpha

1.00

.740 1.00

.523 .521 1.00

.612 .681 .786 1.00

.681 .661 .508 .566 1.00

−.572 −.573 −.435 −.506 −.652 1.00

.689 .672 .570 .641 .734 .708 1.00

6.15 1.89 .95

6.52 1.68 .90

7.35 1.82 .96

7.36 1.85 .95

6.10 1.70 n.a.

4.20 1.69 n.a.

6.43 1.91 n.a.

.505 .513 .379 .435 .509 .477 .568 1.00 6.93 2.30 .93

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Fig. 3. Standardized estimates for hypothesis tests.

difference test indicates that the less parsimonious extended model does not provide a significantly better fit to the data than the proposed conceptualization (Δχ2(4) = 4.49, p N .05). In addition, examination of the squared multiple correlations for both models indicate the extended model fails to explain further variance in customer loyalty. Finally, the parsimony of the two models is compared through observation of the Parsimony Comparative Fit Indices (PCFIs). The PCFI of the proposed model exceeds that of the extended model, and is considerably greater than the difference of .06 Williams and Holahan (1994) recommend for rejecting the extended model. Hence the weight of the evidence strongly favors the original model. In order to further test for mediation, following Baron and Kenney (1986) the study excludes the effect of customer value on loyalty from the tested model. The results indicate brand image (b = .20, p b .05), company image (b = .40, p b .01) and employee trust (b = .12, p b .10) all have significant direct effects on customer loyalty. Company trust is found to have an insignificant effect on customer loyalty (b = − .06). Interpreted in combination with the results from the extended model above, customer value is found to fully mediate the effect of brand image and employee trust, and partially mediate the effect of company image, on customer loyalty. 5. Discussion 5.1. Review of empirical findings The need for research which leads to a better theoretical and practical understanding of branding from a service perspective and how customers' perceptions of the brand influence the customer value– loyalty process motivates this study. From the theoretical framework the study derives and tests a conceptual model. This model includes the traditional aspect of brand image plus three additional aspects of the brand that more fully reflect the broader service brand perspective (company image, employee trust, and company trust). The research shows that each of these plays a critical role and hence provides empirical evidence to support the use of this more general theoretical framework. While all aspects of the brand have a direct influence on customers' perceptions of value, three (brand image, company image

and employee trust) also have an indirect influence on customer value through customers' perceptions of service quality. Each brand aspect's influence on perceptions of service quality and customer value differs in importance. Brand image has a stronger influence on service quality (b = 0.35) than customer value (b = 0.18), which is consistent with the findings of Yoo et al. (2000). Similarly, company image also has a stronger influence on service quality (b = 0.40) and a lesser influence on customer value (b = 0.12). This supports the view that a company's image is also a salient intrinsic cue used to ascertain the quality associated with a potential marketing exchange process (Chen and Dubinsky, 2003; Dawar and Parker, 1994; Teas and Agarwal, 2000). In contrast, the influence of employee trust on service quality (b = 0.17) is marginally stronger than its influence on customer value (b = 0.10). Finally, while company trust does not have a statistically significant influence on service quality, it has a similar influence on customer value (b = 0.10) to employee trust. The conceptual model provides insight into the effectiveness of external marketing activity that is associated with the “making of promises” about the brand entity, which influences brand image and company image. Nonetheless, the interactive marketing activity that is associated with the process of “delivering of promises,” which influences customer perceptions of employee and company trust is also important. This relative importance can be assessed if each of the parameter estimates is divided by the sum of parameter estimates. This analysis shows that the “making of promises” is the dominant influence on perceptions of service quality (i.e., brand image 38%, company image 43% versus employee trust 19%). In contrast the “making of promises” and “delivering of promises” is more balanced for customer value (i.e., brand image 36%, company image 24% versus employee trust 20% and company trust 20%). These results highlight the importance of having a coordinated marketing program that integrates the external communications that build customers' perceptions of brand image and company image with the trust based service delivery processes. The analysis undertaken in this study challenges the validity of the conclusions of previous studies that argue customer trust directly influences customer loyalty (e.g., Sirdeshmukh et al., 2002). This study highlights the need to examine the influence of the service brand within the customer value–loyalty framework, and then to test for mediating

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factors. Previous research reporting a direct linkage between trust and loyalty in both business-to-business settings (Ganesan, 1994; Morgan and Hunt, 1994; Osterhus, 1997) and business-to-consumer settings (Chaudhuri and Holbrook, 2001; Erdem and Swait, 2004; Garbino and Johnson, 1999) does not test for mediation. Examining the research findings in the context of the core customer value–loyalty process also is important. The findings from the model show strong evidence of the customer value trade-off with significant relationships of service quality (b = 0.30) and costs (b = − 0.35) on customer value, and strong support for the relationship between customer value and loyalty (b = 0.64). These results are consistent with the findings from the Sirdeshmukh et al. (2002) study that show customer value is a key influencer of loyalty within an airline context (b = 0.40). They also provide support for Holbrook's (1994, p.22) assertion that customer value “is the fundamental basis for all marketing activity” (p.22). Additionally, the need to integrate the branding strategy around the customer value–loyalty process is consistent with the contemporary views of Woodruff (1997), Srivastava et al. (1999), Rust et al. (2000) and others who emphasize the end customers value experience is the key source of competitive advantage. 5.2. Further empirical research A limitation of this empirical study is that single period crosssectional customer data is used. The single period of data does not allow a test of bi-directional hypotheses between service quality and the brand, so the co-creation of value cannot be examined (Prahalad, 2004). Hence an important extension to the research is to use multiple period data to examine the co-creative influences of the service provider and the customers. Another extension to this study is to use data where the customers, service providers and the organization are respondents. This allows examination of the congruence between these three perceptions and the role the service brand plays in aligning customer, employee and organization perceptions. It is also important to examine the congruence between customers' perceptions, the company's perceptions and other stakeholders' perceptions of the service brand. It is recognized that customer value creation is a dynamic process, so the magnitude and importance of the drivers within the customer value–loyalty process are likely to change over time (Parasuraman, 1997). Future research also could use multiple time periods to examine the evolutionary process. The recent research by Johnson et al. (2006) on the evolution of loyalty intentions provides a useful starting point for this type of investigation. Related to this issue is the need to understand the nature of different service settings where value is co-created between the service suppliers and customers. For airline travel, the cocreation effects between the customers, employees and the company are not likely to be great. However, in other service settings this may be a major factor and is a productive area for research. Of particular importance is further study to enhance understanding of how branding is changing as new media plays a greater role. This exploratory study examines the nature of the service brand in one empirical setting. Further research needs to examine the validity of the model in other contexts. This could involve other airlines and service industries with similar characteristics such as tourism, accommodation and hospitality. However, an important task is to extend the study to a broader range of industries where the importance of goods versus services varies. Vargo and Lusch (2004) suggest that a fundamental premise of the Service Dominant Logic is that “all economies are service economies” (p.10) but what needs to be understood is how the integrative role of service varies. Central to these investigations is whether brand image, company image, employee trust and company trust adequately represent “the service brand” or whether more context specific measures are appropriate. Another important area for research is in examining how the drivers of cost and service quality in the customer value–loyalty

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process will differ across industries and the buying decision context (Rust et al., 2001). In addition, how does the relative importance of the different aspects of the service brand vary? For example, when there are less tangible differences between competing offerings, higher buyer involvement or greater complexity of the buying process. Another consideration is whether the influence of the service brand differs across market segments (e.g., Mudambi, 2002). For this study the population of customers is experienced flyers, so the results may not generalize to other market segments that may be less involved and knowledgeable about airline travel. The research shows the importance of examining the influence of the service brand within the customer value–loyalty process. This allows for testing for a direct versus a mediated influence of the brand on customer loyalty. Further research examining the extent these influences are mediated through customer value needs to be undertaken in other empirical settings. In addition other influences on value and loyalty could be included. Further research needs also to test competing models. While the service brand is conceptualized here as having the influences of brand image, company image, employee trust, and company trust, an alternative theoretical framework may lead to a different conceptual model. For example, Rust et al.'s (2000) customer equity model provides an alternative conceptualization of the brand and how it influences customer loyalty. Another avenue for research is to investigate co-branding. Only recently has this research area received empirical attention (James, 2005; Motion et al., 2003; Van Durme et al., 2003). Further research also needs to investigate the service brand in a broader environment beyond the company, its employees and its customers to include interactions and relationships with other stakeholders within the organization and the company's network of external stakeholders. Finally it is useful to explore the integration of the service brand model with a financial framework, thus responding to Keller and Lehmann's (2006 p. 753) priority for branding research that develops systems models which link antecedents (company actions) to consequences (what customers do about the brand and financial market impact). Recent research by Rust et al. (2004) provides the appropriate conceptual framework. This allows for the inclusion of financial metrics such as ROI, EVA, or EBIT, hence linking marketing with financial accountability and the profitability of customers (Rienartz and Kumar, 2000). By integrating financial metrics, insights could be gained into the current debate between managing the customer database and customer equity versus managing brand processes and brand equity (e.g., Ambler et al., 2002; Rust et al., 2004). Appendix A. Questionnaire used to measure constructs Brand image: Please consider your attitudes towards [the Airline's] marketing and advertising campaigns from all media such as TV, Internet, magazines, radio and sponsorship activities. How much do you agree or disagree with each of the following statements about [the Airline], (where 1 = strongly disagree and 10 = strongly agree). 1. 2. 3. 4. 5. 6.

Thinks outside the square Are warm and engaging Are daring Are spirited Are imaginative Are up-to-date

Company image: Thinking about [the Airline's] company reputation, as a customer, how would you rate [the airline] on (where 1 = poor and 10 = excellent) 1. Being involved with the community 2. Being well managed 3. Keeping you informed about what is happening with the company

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4. Being a good corporate citizen 5. Being successful Employee trust: Overall I feel that the [Airline's] employees are. (10-point scale) 1. 2. 3. 4.

Very unreliable ____________________________Very reliable Very incompetent __________________________Very competent Very low integrity __________________________Very high integrity Very unresponsive to customers _____________Very responsive to customers

Company trust: Overall I feel that [the Airline] as a company is. (10-point scale) 1. 2. 3. 4.

Very unreliable ____________________________Very reliable Very incompetent __________________________Very competent Very low integrity __________________________Very high integrity Very unresponsive to customers ______________Very responsive to customers

Service quality: Please rate [the Airline] on each of these service features (where 1 = poor and 10 = excellent) 1. 2. 3. 4. 5. 6. 7.

The Airpoints Program The seat comfort The range of entertainment provided The quality of the meals served during the flight The quality of the beverages served during the flight The friendliness of the cabin crew The helpfulness of the cabin crew

Costs: Thinking now about the costs associated with flying on [this Airline], please rate [this Airline] on each of these cost factors (where 1 = poor and 10 = excellent) 1. The monetary cost of the flight ticket⁎ 2. The amount of taxes, levies and surcharges paid⁎ 3. The waiting time⁎ Customer value: Overall, thinking about the service features in comparison to the costs associated with flying [this Airline], how would you rate your overall experience with [this Airline]? (where 1 = Extremely poor value and 10 = Extremely good value) Customer loyalty: Thinking about your loyalty towards [this Airline], overall how likely are you to (where 1 = very unlikely and 10 = very likely) 1. 2. 3. 4.

Do most of your future travel with [this Airline] Recommend [this Airline] to your friends, neighbors and relatives Use [this Airline] the next time you need to travel Take more than 50% of your flights with [this Airline] ⁎ Item was reverse coded.

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